What’s Next & So What? Leading in the 21st Century

Efficient, restructured, and reengineered organizations may have been good enough to succeed in the 20th century, say John Kotter and Gary Hamel, but organizations that want to compete in the next century need to develop the leadership and innovation to change the marketplace.

by Staff

Leading in the 21st Century is an HBS Executive Education program being held in January 2000. Professors Gary Hamel and John Kotter talk about the course and the new realities of leadership and competitive success.

Q: What led the two of you to develop this course?

Hamel: One reason is that John and I had collaborated "telepathically" for years. I'd always liked John's perspective on leadership, and I think he more or less appreciated what I was doing, so our working together to develop this course was a natural outgrowth of that mutual respect.

Kotter: That's right. I should add that Gary has been kind enough to help the School in a number of ways in launching a Global Leadership Initiative. Our work on that project has led us to conclude that there are not many short executive education courses anywhere that address innovation and leadership for the future as well.

Q: How does the course fit into a global context?

Hamel: In the last few years, the business world has changed dramatically. No longer moving linearly or at a steady, predictable pace, the world has become fundamentally discontinuous. Most organizations still operate, however, as though nothing has changed. Indeed, many of the leaders we've celebrated over the last decade or two made their organizations competitive by instituting fairly linear improvements, such as reengineering, supply chain management, enhanced customer responsiveness, and cost controls. These ideas were consistent with the traditional Taylorist view of the company as a centrally driven entity that creates wealth by getting better and better at doing the same thing.

But now the problem is quite different. Competition is no longer in global scale-intensive industries; rather, it's in nontraditional imagination-intensive industries that can be anybody, anywhere. While some observers have dismissed the phenomenon as exclusive to "a few crazy Internet companies in California," the reality is this: the value of corporate incumbency these days is virtually nil. The deep questions about purpose, direction, and destiny that organizations used to ask themselves only once every generation now must be addressed about every three or four years.

Another reason that John and I have collaborated on developing this course is to help people recognize that this new reality is not an aberration; in fact, we are at an inflection point in history, leaving one age and entering another. Many of our philosophical assumptions about what constituted leadership and competitive success grew out of a different world. The challenge now is to help managers understand the new corporate agenda, in order for their organizations to thrive in the 21st century.

Kotter: My sense is that the great companies in the next few decades will be those that have purged themselves of the overmanaged, underled, Dilbert-like silliness that is all too common nowadays. They will have driven the kind of good leadership we see today — a visionary, transformational kind of leadership — deeper into the organization, and they will be inventing other kinds of leadership to stay on top of this incredibly fast-moving, discontinuous world that Gary describes.

Q: Who is this course for?

Hamel: The course will be invaluable to anyone who cares deeply about keeping their organization relevant, regardless of their job title or function. These people will have already done "the fixes," such as leadership training, 360-degree reviews, assessments, programs, and whatever else, and are asking, "Now what?" In this course, we'll analyze the big picture (Just what is it that's changing?), help participants understand the "new agenda," and offer a good deal of practical advice on how to thrive in the coming years.

Something important I've come to understand is that you cannot predict which person in an organization is going to have the power and the passion to fundamentally change it. For example, almost half of Sony's profits now come from a guy who six or seven years ago was a lowly engineer in corporate R&D. He had to fight his way up the hierarchy to ultimately find recognition for his pioneering technology, released a few [?] years ago as the Sony Play Station.

Q: Would this course also be suitable for managers of nonprofits?

Kotter: Yes, absolutely. We hope to have a broad group — professionally, functionally, and internationally — made up of open-minded individuals who would like to help create astounding organizations of any kind.

Q: In the course description, you talk about breaking the "shackles" of traditional management. Can you provide some specifics?

Hamel: Sure. Let's look at resource allocation, for example. That process is extraordinarily conservative, because the people at the top are typically not close enough to the "voice of the future" to see new opportunities, creating a bias against doing new things. In addition, this process is tied to an annual calendar; obviously, opportunities don't present themselves only in October at capital budgeting time. So even though most companies spent the last decade reinventing their core business processes — such as how they do purchasing or manage inventory and order processing — they did so with the aim of greater efficiency. Most of them have not touched the core management processes — such as human resources, compensation, capital budgeting, and strategic planning — that tend to lock them into the past.

In the case of resource allocation, organizations will have to move from an "allocation" to an "attraction" mode whereby people anywhere in the organization can create a kind of internal marketplace for ideas, talent, and capital. Concurrently, leadership will move from that of a "wise seer" making the big decisions to individuals within the firm who create the context in which things can happen.

Kotter: I agree. Two other "shackles" that will have to change are: compensation systems for senior management, which tend to alienate the rest of the organization, and the current obsession with programs, a panacea that glosses the surface of problems but often doesn't address their causes.

Hamel: During my academic career spanning the last fifteen years or so, I've noticed that the ratio of the average Fortune 500 CEO's pay to that of the first level of employees has gone from about 150:1 to more than 300:1. As an ordinary employee, my view would be that if those guys at the top are making that kind of money, they had better have all the good ideas! Ironically, we talk about the knowledge economy that taps every brain within the organization, yet this unbalanced compensation structure is absolutely antithetical to that theory.

Q: Which companies do you admire for their outstanding leadership?

Kotter: Rather than one particular company standing out, we see sparks of it here and there, more often in entrepreneurial situations.

Hamel: I think we see it in two kinds of places: in isolated pockets within large corporations (GE Capital, for example), and in relatively young companies such as the GAP or Charles Schwab.

Q: What are these companies doing that older, more entrenched organizations are not?

Kotter: That's a big question we've written entire books about!

Hamel: Let's look at it this way: Most companies' top managers will tell you that they have spent the bulk of their time over the last decade on improvement. Now it's no longer enough to get better; you have to "get different" — for example, in the way that GE went from manufacturing to services or Charles Schwab went from bricks and mortar to online services. But what happens when we ask senior managers how they plan to develop the capacity to reinvent themselves? They answer, "We're going to have an off-site at the Four Seasons sometime." So the amount of energy that has been expended in "getting different" is a small fraction of the amount they've expended in "getting better."

Kotter: One could argue that the distance between the winners and the also-rans is going to widen considerably.

Hamel: There is a lot of evidence of that already, with an ever-expanding pool of mediocre companies and an ever-diminishing group of truly outstanding performers. The mediocre companies are managing themselves by the rules of the old economy.

Q: Are we chiefly talking about American businesses?

Hamel: No, this is worldwide. Because of the spread of the American form of capitalism around the world, Asian and European companies in particular have been forced to go through the same kind of rationalization, cost-cutting, and efficiency programs that American companies have experienced. They're in the same hyper-competitive environment that we are.

Q: On a scale of 0 to 5, how would you rate corporate America's leadership capacity at the present time?

Hamel: Against the old standard, I'd give them a 4; against the new standard, 0.5.

Kotter: But the old standard is irrelevant. The question should be, "How would we rate the nation's leadership capacity against what we see coming at us?" Perhaps a generous way of saying it is, we fear the rating might be quite low.

Hamel: Let me put it slightly differently. From my study of dozens of firms around the world, I would say there are probably fewer than five out of one hundred organizations that a) understand the new leadership agenda and b) have any systematic efforts to address it.

Q: How will participants learn in this program — through lectures, readings, practitioner visits?

Hamel: All of the above, and more. John and I have spent a lot of time at the "bleeding edge" of companies that are wrestling with these issues, and we'll have many good examples to share. We've also worked to create some organizing frameworks that enable managers to deal with these messy, complicated sets of challenges. My focus for participants will be on questions such as: What is the role of activists in transforming organizations? What is the game plan for getting your action started? and, How do you make innovation a deeply imbedded capability?

Kotter: Broadly, the "What's Next" part of the course will help managers to understand the new context for leadership and competition. "So What" refers to helping them form their own personal agenda for what it's going to take to help the organization succeed in this new environment.

That sounds very interesting! Good luck, and thank you both for your time.